Sliding Home Depot as Bellwether for Domestic Economy

Home Depot (NYSE:HD) the home improvement retailer is a useful bellwether for the domestic U.S. economy. $HD is trading near the bottom of the stock’s 52-week range. So how does the current share price look from an intrinsic value perspective?

Valuecruncher produces a valuation of US$24.00 for $HD. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 14.7% above the current share price of US$20.93.

Assumptions

Revenue: Reuters aggregates 17 analysts covering $HD and these analysts have mean estimates of 2009 and 2010 revenues of US$72.4 billion and US$73.0 billion respectively. For our analysis we have used US$72.5 billion in 2009, US$73.0 billion in 2010 and US$75.0 billion in 2011.

Profitability: We have used an EBITDA margin of 9.5% in 2009 rising to 10.5% in 2011. Reuters has $HD‘s EBITD margin at 10.1% last year and averaging 12.8% over the last five-years.

Capital Expenditure: We have assumed capital expenditures of US$2.25 billion in 2009 and 2010 then US$2.50 billion per annum moving forward.

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